US Internal Revenue Service: rp-07-16

8/14/2019 US Internal Revenue Service: rp-07-16

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and in methods of accounting.(Also: Part I, 446, 1016; 1.446-1, 1.1016-3.)

Rev. Proc. 2007-16

SECTION 1. PURPOSE

This revenue procedure provides an automatic consent procedure allowing a

taxpayer to make a change in method of accounting under 446(e) of the Internal

Revenue Code for depreciable or amortizable property (hereinafter referred to

collectively as depreciable property) after its disposition. This revenue procedure also

waives the application of the two-year rule set forth in Rev. Rul. 90-38, 1990-1 C.B. 57,

for certain changes in depreciation or amortization (hereinafter referred to collectively as

depreciation). This revenue procedure clarifies, modifies, amplifies, and supersedes

Rev. Proc. 2004-11, 2004-1 C.B. 311. This revenue procedure also modifies Rev. Proc.

2002-9, 2002-1 C.B. 327 (as modified and clarified by Announcement 2002-17, 2002-1


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C.B. 561, modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, and

amplified, clarified, and modified by Rev. Proc. 2002-54, 2002-2 C.B. 432), and other

revenue procedures to conform with 1.446-1(e)(2)(ii)(d) of the Income Tax

Regulations.

SECTION 2. BACKGROUND AND CHANGES

.01 Section 446(e) and 1.446-1(e) provide that, except as otherwise provided,

a taxpayer must secure the consent of the Commissioner of Internal Revenue before

changing a method of accounting for federal income tax purposes. Section

1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures

setting forth the limitations, terms, and conditions deemed necessary to permit a

taxpayer to obtain consent to change a method of accounting.

.02 On January 20, 2004, the Internal Revenue Service published Rev. Proc.

2004-11, which provided an automatic consent procedure allowing a taxpayer to make a

change in method of accounting under 446(e) for depreciable property after its

disposition. Rev. Proc. 2004-11 also waived the application of the two-year rule set

forth in Rev. Rul. 90-38 for certain changes in depreciation. In addition, Rev. Proc.

2004-11 modified Rev. Proc. 2002-9 and other revenue procedures to conform with

1.446-1T(e)(2)(ii)(d) of the temporary Income Tax Regulations.

.03 Concurrent with the issuance of this revenue procedure,

1.446-1(e)(2)(ii)(d) and 1.1016-3(h) have been promulgated. Section

1.446-1(e)(2)(ii)(d) identifies the changes in depreciation that are (and are not)

considered a change in method of accounting. Section 1.1016-3(h) provides that for


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purposes of determining whether a change in depreciation is a change in method of

accounting under 446(e), the allowed or allowable rule under 1016(a)(2) will not be

considered to permanently affect a taxpayers lifetime income.

.04 In general, if a taxpayer uses an impermissible method of accounting in two

or more consecutively filed federal tax returns the taxpayer has adopted a method of

accounting. See Rev. Rul. 90-38. The Service and Treasury Department recognize

that with respect to changes in depreciation this two-year rule may increase

administrative and compliance costs because many taxpayers changing from an

impermissible to permissible method of accounting for depreciation used the

impermissible method for depreciable properties placed in service in the taxable year

immediately preceding the year of change. Accordingly, in the interest of sound tax

administration, the Service and Treasury have decided to waive the two-year rule in

Rev. Rul. 90-38 for a change in depreciation to which 1.446-1(e)(2)(ii)(d) applies.

.05 If depreciable property is transferred in a transaction in which the transferee

is treated as the transferor for purposes of computing the depreciation allowance for the

property with respect to so much of the basis in the hands of the transferee as does not

exceed the adjusted depreciable basis in the hands of the transferor (for example, in

transactions subject to 168(i)(7) or 381(c)(6)), the transferee may file a Form 3115,

Application for Change in Accounting Method, to change from an impermissible method

of accounting adopted by the transferor for that portion of the basis of the property to a

permissible method of accounting for depreciation for the same portion of the basis of

the property, provided the impermissible method of accounting for that portion of the


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basis of the property has not been changed by the transferor (through filing, for

example, a Form 3115 or an amended return) or by the Service upon examination of the

transferors tax returns. In this case, the 481 adjustment will include any necessary

adjustments since the propertys placed-in-service date by the transferor.

.06 The significant changes to Rev. Proc. 2004-11 include:

(1) The application of section 3 is extended to allow a taxpayer to file a Form

3115 with an original federal tax return for the taxable year in which the depreciable

property is disposed of by the taxpayer that claimed less than the depreciation allowable

for that property.

(2) A new section 4.01 is added, clarifying that a change from an impermissible

method of determining depreciation for depreciable property in two or more

consecutively filed federal tax returns is a change in method of accounting under

446(e) and 1.446-1(e).

(3) A new section 6.03 is added, extending the application of section 3 of this

revenue procedure to dispositions of depreciable property occurring in taxable years

ending before December 30, 2003.

.07 The significant changes to Rev. Proc. 2002-9 include:

(1) Section 2.01 of the APPENDIX of Rev. Proc. 2002-9 is changed to clarify

that section 2.01 of this APPENDIX does not apply to any property for which a taxpayer

is revoking a timely valid election or making a late election under 179, or to any

change in method of accounting involving a change from capitalizing and depreciation

the cost or other basis of any property to deducting the cost or other basis as an


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expense.

(2) Section 2B of the APPENDIX of Rev. Proc. 2002-9 is changed to remove

section 2B.03, which provided that the change under section 2B does not apply to a

change in useful life under the method described in section 5.01(2) or 6.01(2) of Rev.

Proc. 2000-50.

SECTION 3. METHOD CHANGE PROCEDURE FOR DISPOSED DEPRECIABLE OR

AMORTIZABLE PROPERTY

.01 Scope.

(1) Applicability. Except as provided in section 3.01(2) of this revenue

procedure, section 3 of this revenue procedure applies to a taxpayer that is changing

from an impermissible method of accounting for depreciation to a permissible method of

accounting for depreciation for any item of depreciable property subject to 167, 168,

197, 1400I, 1400L(c), to former 168, or to any additional first year depreciation

deduction provision of the Internal Revenue Code (for example, 168(k), 1400L(b), or

1400N(d)):

(a) that has been disposed of by the taxpayer during the year of change (as

defined in section 3.02(3)(b) of this revenue procedure); and

(b) for which the taxpayer did not take into account any depreciation

allowance, or did take into account some depreciation but less than the depreciation

allowable (hereinafter, both are referred to as claimed less than the depreciation

allowable), in the year of change (as defined in section 3.02(3)(b) of this revenue

procedure) or any prior taxable year.


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(2) Inapplicability. Section 3 of this revenue procedure does not apply to:

(a) any property to which 1016(a)(3) (regarding property held by a tax-

exempt organization) applies;

(b) any property for which a taxpayer is revoking a timely valid depreciation

election, or making a late depreciation election, under the Code or regulations

thereunder, or under other guidance published in the Internal Revenue Bulletin

(including under 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993, 1993-3

C.B. 1, 128 (relating to amortizable 197 intangibles));

(c) any property for which the taxpayer deducted the cost or other basis of

the property as an expense; or

(d) any property disposed of by the taxpayer in a transaction to which a

nonrecognition section of the Code applies (for example, 1031, transactions subject to

168(i)(7)(B)(i)). However, this section 3.01(2)(d) does not apply to property disposed

of by the taxpayer in a 1031 or 1033 transaction if the taxpayer elects under

1.168(i)-6T(i) and (j) to treat the entire basis (that is, both the exchanged and excess

basis (as defined in 1.168(i)-6T(b)(7) and (8), respectively)) of the replacement

MACRS property (as defined in 1.168(i)-6T(b)(1)) as property placed in service by the

taxpayer at the time of replacement and treat the adjusted depreciable basis of the

relinquished MACRS property (as defined in 1.168(i)-6T(b)(2)) as being disposed of

by the taxpayer at the time of disposition.

.02 Change in method of accounting.

(1) Change made on original return for year of change. On its timely filed


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(including extensions) original federal tax return for the year of change (as defined in

section 3.02(3)(b) of this revenue procedure), a taxpayer within the scope of section 3 of

this revenue procedure may change from an impermissible method of accounting for

depreciation to a permissible method of accounting for depreciation for any item of

depreciable property within the scope of section 3 of this revenue procedure, provided

the taxpayer files the original Form 3115 in accordance with section 6.02(3) of Rev.

Proc. 2002-9 (or its successor).

(2) Change made on an amended return for year of change. On an amended

federal tax return for the year of change (as defined in section 3.02(3)(b) of this

revenue procedure), a taxpayer within the scope of section 3 of this revenue procedure

may change from an impermissible method of accounting for depreciation to a

permissible method of accounting for depreciation for any item of depreciable property

within the scope of section 3 of this revenue procedure, provided:

(a) the taxpayer files the original Form 3115 in accordance with section

3.02(3)(c) of this revenue procedure prior to the expiration of the period of limitation for

assessment under 6501(a) for the taxable year in which the item of depreciable or

amortizable property was disposed of by the taxpayer; and

(b) the taxpayer files an amended federal tax return for the year of change

(as defined in section 3.02(3)(b) of this revenue procedure) that includes the

adjustments to taxable income and any collateral adjustments to taxable income or tax

liability (for example, adjustments to the amount or character of the gain or loss of the

disposed depreciable or amortizable property) resulting from the change in method of


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accounting for depreciation made by the taxpayer under this section 3.

(3) Application Procedures. A taxpayer making a change in method of

accounting under section 3 of this revenue procedure must follow the automatic change

in method of accounting provisions in Rev. Proc. 2002-9 (or its successor), with the

following modifications:

(a) The scope limitations in section 4.02 of Rev. Proc. 2002-9 do not apply. If

the taxpayer is under examination, before an appeals office, or before a federal court at

the time that a copy of the Form 3115 is filed with the national office, the taxpayer must

provide a copy of the Form 3115 to the examining agent, appeals officer, or counsel for

the government, as appropriate, at the time the copy of the Form 3115 is filed with the

national office. The Form 3115 must contain the name(s) and telephone number(s) of

the examining agent, appeals officer, or counsel for the government, as appropriate.

(b) The year of change is the taxable year in which the item of depreciable

property was disposed of by the taxpayer.

(c) If section 3.02(2) of this revenue procedure applies to the taxpayer,

section 6.02(3)(a) of Rev. Proc. 2002-9 is modified to require the original of the Form

3115 to be attached to the taxpayers timely filed amended federal tax return for the

year of change and a copy (with signature) of the Form 3115 to be filed with the national

office no later than when the original Form 3115 is filed with the amended federal tax

return for the year of change.

(d) For purposes of section 6.02(4)(a) of Rev. Proc. 2002-9, the taxpayer

should include on line 1a of the Form 3115 (revised December 2003) the designated


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automatic accounting method change number for the change in method of accounting

for depreciation made under this section 3. This number for this method change is 107.

.03 Taxpayer or property outside scope. If a taxpayer is precluded from using

section 3 of this revenue procedure because the taxpayer or the item of depreciable

property is outside the scope of section 3 of this revenue procedure (for example, the

item of depreciable property was not disposed of by the taxpayer), any change in

method of accounting for depreciation must be made in accordance with the

requirements of Rev. Proc. 97-27, 1997-1 C.B. 680 (or its successor), or Rev. Proc.

2002-9 (or its successor), as applicable.

SECTION 4. WAIVER OF TWO-YEAR RULE IN REV. RUL. 90-38

.01 In general. If a taxpayer uses an impermissible method of determining

depreciation for a depreciable property, the taxpayer adopts that method of accounting

for the property when the taxpayer treats the property in the same way in determining

gross income or deductions in two or more consecutively filed federal tax returns.

Accordingly, the taxpayer changing from that impermissible method of accounting must

file a Form 3115 in accordance with the requirements of

1.446-1(e)(3)(i) and, as applicable, Rev. Proc. 97-27 or Rev. Proc. 2002-9. See Rev.

Rul. 90-38.

.02 Waiver of two-year rule. Notwithstanding Rev. Rul. 90-38, a taxpayer may

file a Form 3115 under Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable, to change

from an impermissible method of accounting for depreciation to a permissible method of

accounting for depreciation under 1.446-1(e)(2)(ii)(d) for any depreciable property


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subject to 1.446-1(e)(2)(ii)(d) and placed in service by the taxpayer in the taxable year

immediately preceding the year of change (as defined in section 5.02(2) of Rev. Proc.

97-27 or section 5.02 of Rev. Proc. 2002-9, as applicable) (hereinafter, this property is

referred to as 1-year depreciable property), provided the additional term and condition

in section 4.03 of this revenue procedure is satisfied. Alternatively, the taxpayer may

make the change from the impermissible depreciation method to the permissible

depreciation method for the 1-year depreciable property by filing an amended federal

tax return for the placed-in-service year prior to the date the taxpayer files its federal tax

return for the taxable year succeeding the placed-in-service year.

.03 Additional term and condition for filing a Form 3115. In addition to the terms

and conditions provided in Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable, the

481 adjustment reported on a Form 3115 that is filed by a taxpayer in accordance with

section 4.02 of this revenue procedure to make a change in method of accounting for

depreciation under 1.446-1(e)(2)(ii)(d) for any 1-year depreciable property, must

include the amount of any adjustment attributable to all property (including the 1-year

depreciable property) subject to the Form 3115.

SECTION 5. EFFECT ON OTHER DOCUMENTS

.01 Rev. Proc. 2004-11 is clarified, modified, amplified, and superseded.

.02 The heading for section 2 of the APPENDIX of Rev. Proc. 2002-9 is modified

to read as follows: SECTION 2. DEPRECIATION OR AMORTIZATION ( 56(a)(1),

56(g)(4)(A), 167, 168, 197, 1400I, 1400L, OR 1400N(d), OR FORMER 168).

.03 Rev. Proc. 2002-9 (as modified by Rev. Proc. 2004-11) is modified by


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deleting sections 2.01, 2.02, 2B, and 2.05 of the APPENDIX and replacing them with

the text in, respectively, sections 1, 2, 3, and 4 of the APPENDIX of this revenue

procedure.

.04 Section 6.03 of Rev. Proc. 2000-38, 2000-2 C.B. 310, 313, is modified by

deleting See 1.446-1(e)(2)(ii)(b). and replacing it with See

1.446-1(e)(2)(ii)(d)(3)(i).

.05 Section 8.01 of Rev. Proc. 2000-50, 2000-2 C.B. 601, is modified to read as

follows: A change in a taxpayers treatment of costs paid or incurred to develop,

purchase, lease, or license computer software to a method described in section 5, 6, or

7 of this revenue procedure is a change in method of accounting to which 446 and

481 apply. Further, a change in useful life under the method described in section

6.01(2) of this revenue procedure is a change in method of accounting to which 446

and 481 apply. Additionally, if a taxpayer is currently treating costs paid or incurred to

develop computer software under section 5.01(2) of this revenue procedure in

accordance with the rules provided in 167(f)(1) and the regulations thereunder but is

not currently using a useful life of 36 months, a change in useful life to 36 months is a

change in method of accounting to which 446 and 481 apply. See 1.446-

1(e)(2)(ii)(d)(3)(i).

SECTION 6. EFFECTIVE DATE

.01 In general. Except as provided in sections 6.02, 6.03, and 6.04 of this

revenue procedure, this revenue procedure is effective for a Form 3115 filed for taxable

years ending on or after December 26, 2006.


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.02 Transition rule for previously filed Forms 3115 for automatic consent.

(1) For a taxable year ending on or after December 26, 2006, a taxpayer may

make a change in method of accounting previously authorized in section 2.01, 2.02, or

2B of the APPENDIX of Rev. Proc. 2002-9 in effect on the date on which the Form 3115

was filed with the national office by the taxpayer (see Rev. Proc. 2004-11) if:

(a) before December 26, 2006, the taxpayer filed a completed Form 3115

with the national office to make that change in method of accounting; and

(b) the taxpayer makes that change in method of accounting in compliance

with all the applicable provisions of Rev. Proc. 2002-9 for the requested year of change

(as defined in section 5.02 of Rev. Proc. 2002-9) on that Form 3115.

(2) If a taxpayer filed a Form 3115 with the national office to make a change in

method of accounting previously authorized in section 2.01, 2.02, or 2B of the

APPENDIX of Rev. Proc. 2002-9 in effect on the date on which the Form 3115 was filed

with the national office by the taxpayer for a year of change for which this revenue

procedure is effective (see section 6.01 of this revenue procedure) and the taxpayers

original federal tax return for that year of change was not filed before December 26,

2006, the taxpayer may make the change in method of accounting authorized under

section 2.01, 2.02, or 2B, as applicable, of the APPENDIX of Rev. Proc. 2002-9 as

revised by this revenue procedure. However, the Service will process the Form 3115 in

accordance with the section of the APPENDIX of Rev. Proc. 2002-9 in effect on the date

on which the Form 3115 was filed with the national office by the taxpayer unless on or

before the due date (including extensions) of the taxpayers federal tax return for the


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requested year of change (as defined in section 5.02 of Rev. Proc. 2002-9) on that

Form 3115, the taxpayer completes a new Form 3115 to make the change under

section 2.01, 2.02, or 2B, as applicable, of the APPENDIX of Rev. Proc. 2002-9 as

revised by this revenue procedure and files this newly completed Form 3115 in

duplicate in accordance with section 6.02(3)(a) of Rev. Proc. 2002-9. Additionally, the

newly completed Form 3115 must include the statement: Section [insert, as

appropriate: 2.01, 2.02, or 2B] of the APPENDIX of Rev. Proc. 2002-9 as revised by

Rev. Proc. 2007-16. This statement must be legibly printed or typed on the appropriate

line on, or at the top of page 1 of, the Form 3115.

.03 Application of section 3. Section 3 of this revenue procedure is effective for a

Form 3115 filed on or after [INSERT DROP DATE].

.04 Changes made to Rev. Proc. 2000-50. The changes made in section 5.06 of

this revenue procedure to section 8.01 of Rev. Proc. 2000-50 are effective for a Form

3115 filed for the taxable years ending on or after [INSERT DROP DATE], except that:

(1) the change made to section 8.01 of Rev. Proc. 2000-50 providing that a

change in useful life under the method described in section 6.01(2) of Rev. Proc. 2000-

50 is a change in method of accounting is effective for property placed in service by the

taxpayer in a taxable year ending on or after December 30, 2003; and

(2) the change made to section 8.01 of Rev. Proc. 2000-50 providing that a

change in useful life to 36 months made by a taxpayer that is currently treating costs

paid or incurred to develop computer software under section 5.01(2) of Rev. Proc. 2000-

50 in accordance with the rules provided in 167(f)(1) and the regulations thereunder


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but is not currently using a useful life of 36 months is a change in method of accounting

is effective for property placed in service by the taxpayer in a taxable year ending on or

after December 30, 2003.

SECTION 7. DRAFTING INFORMATION

The principal author of this revenue procedure is Douglas H. Kim of the Office of

Associate Chief Counsel (Passthroughs & Special Industries). For further information

regarding this revenue procedure contact Mr. Kim at (202) 622-3110 (not a toll free call).


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APPENDIX

SECTION 1. Section 2.01 of the APPENDIX of Rev. Proc 2002-9 is deleted and

replaced with the following:

.01 Impermissible to permissible method of accounting for depreciation or

amortization.

(1) Description of change and scope.

(a) Applicability. This change applies to a taxpayer that wants to

change from an impermissible to a permissible method of accounting for depreciation or

amortization (depreciation) for any item of depreciable or amortizable property:

(i) for which the taxpayer used the impermissible method of

accounting in at least the two taxable years immediately preceding the year of change

(but see section 2.01(1)(b) of this APPENDIX for property placed in service in the

taxable year immediately preceding the year of change);

(ii) for which the taxpayer is making a change in method of

accounting under 1.446-1(e)(2)(ii)(d);

(iii) for which depreciation is determined under 56(a)(1),

56(g)(4)(A), 167, 168, 197, 1400I, or 1400L(c), under 168 prior to its

amendment in 1986 (former 168), or under any additional first year depreciation

deduction provision of the Internal Revenue Code (for example, 168(k), 1400L(b), or

1400N(d)); and

(iv) that is owned by the taxpayer at the beginning of the


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year of change (but see section 2.05 of this APPENDIX for property disposed of before

the year of change).

(b) Taxpayer has not adopted a method of accounting for the item

of property. If a taxpayer does not satisfy section 2.01(1)(a)(i) of this APPENDIX for an

item of depreciable or amortizable property because this item of property is placed in

service by the taxpayer in the taxable year immediately preceding the year of change

(1-year depreciable property), the taxpayer may change from the impermissible

method of determining depreciation to the permissible method of determining

depreciation for the 1-year depreciable property by filing a Form 3115 for this change,

provided the 481 adjustment reported on the Form 3115 includes the amount of any

adjustment that is attributable to all property (including the 1-year depreciable property)

subject to the Form 3115. Alternatively, the taxpayer may change from the

impermissible method of determining depreciation to the permissible method of

determining depreciation for a 1-year depreciable property by filing an amended federal

tax return for the propertys placed-in-service year prior to the date the taxpayer files its

federal tax return for the taxable year succeeding the placed-in-service year.

(c) Certain scope limitations inapplicable. The scope limitations in

sections 4.02(7) and 4.02(8) of this revenue procedure are not applicable to this

change.

(d) Inapplicability. This change does not apply to:

(i) any property to which 1016(a)(3) (regarding property

held by a tax-exempt organization) applies;


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(ii) any taxpayer that is subject to 263A and that is required

to capitalize the costs with respect to which the taxpayer wants to change its method of

accounting under section 2.01 of this APPENDIX, if the taxpayer is not capitalizing the

costs as required;

(iii) any property for which a taxpayer is making a change in

depreciation under 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);

(iv) any property subject to 167(g) (regarding property

depreciated under the income forecast method);

(v) any 1250 property that a taxpayer is reclassifying to an

asset class of Rev. Proc. 87-56, 1987-2 C.B. 674, or Rev. Proc. 83-35, 1983-1 C.B.

745, as appropriate, that does not explicitly include 1250 property (for example, asset

class 57.0, Distributive Trades and Services);

(vi) any property for which a taxpayer is revoking a timely

valid election, or making a late election, under 167, 168, 179, 1400I, 1400L(c),

former 168, 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993

Act), 1993-3 C.B. 1, 128 (relating to amortizable 197 intangibles), or any additional

first year depreciation deduction provision of the Internal Revenue Code (for example,

168(k), 1400L(b), or 1400N(d)). A taxpayer may request consent to revoke or

make the election by submitting a request for a letter ruling under Rev. Proc. 2006-1,

2006-1 I.R.B. 1 (or any successor). However, if a taxpayer is revoking or making an

election under 179, see 179(c) and 1.179-5. See 1.446-1(e)(2)(ii)(d)(3)(iii);

(vii) any property for which depreciation is determined under


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56(g)(4)(A) or 167 (other than under 168, 1400I, 1400L(c), former 168, or

any additional first year depreciation deduction provision of the Code (for example,

168(k), 1400L(b), or 1400N(d))) and a taxpayer is changing the useful life of the

property. A change in the useful life of property is corrected by adjustments in the

applicable taxable year provided under 1.446-1(e)(2)(ii)(d)(5)(iv). However, this

section 2.01(1)(d)(vii) of this APPENDIX does not apply if the taxpayer is changing to or

from a useful life, recovery period, or amortization period that is specifically assigned by

the Internal Revenue Code (for example, 167(f)(1), 168(c)), the regulations

thereunder, or other guidance published in the Internal Revenue Bulletin and, therefore,

this change is a change in method of accounting (unless section 2.01(1)(d)(xv) of this

APPENDIX applies). See 1.446-1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable property for which the use changes in

the hands of the same taxpayer. See 1.446-1(e)(2)(ii)(d)(3)(ii);

(ix) any property for which depreciation is determined in

accordance with 1.167(a)-11 (regarding the Class Life Asset Depreciation Range

System (ADR));

(x) any change in method of accounting involving a change

from deducting the cost or other basis of any property as an expense to capitalizing and

depreciating the cost or other basis, or vice versa;

(xi) any change in method of accounting involving a change

from one permissible method of accounting for the property to another permissible

method of accounting for the property. For example:


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(A) a change from the straight-line method of

depreciation to the income forecast method of depreciating for videocassettes. See

Rev. Rul. 89-62, 1989-1 C.B. 78; or

(B) a change from charging the depreciation reserve

with costs of removal and crediting the depreciation reserve with salvage proceeds to

deducting costs of removal as an expense (provided the costs of removal are not

required to be capitalized under any provision of the Code, such as, 263(a)) and

including salvage proceeds in taxable income (see section 2.02 of this APPENDIX for

making this change for property for which depreciation is determined under 167);

(xii) any change in method of accounting involving both a

change from treating the cost or other basis of the property as nondepreciable or

nonamortizable property to treating the cost or other basis of the property as

depreciable or amortizable property and the adoption of a method of accounting for

depreciation requiring an election under 167, 168, 1400I, 1400L(c), former

168, 13261(g)(2) or (3) of the 1993 Act, or any additional first year depreciation

deduction provision of the Code (for example, a change in the treatment of the space

consumed in landfills placed in service in 1990 from nondepreciable to depreciable

property (assuming section 2.01(1)(d)(xiii) of the APPENDIX does not apply) and the

making of an election under 168(f)(1) to depreciate this property under the unit of

production method of depreciation under 167);

(xiii) any change in method of accounting for any item of

income or deduction other than depreciation, even if the change results in a change in


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computing depreciation under 1.446-1(e)(2)(ii)(d)(2)(i), (ii), (iii), (iv), (v), (vi), (vii), or

(viii). For example, a change in method of accounting involving:

(A) a change in inventory costs (for example, when

property is reclassified from inventory property to depreciable property, or vice versa)

(but see section 3.02 of this APPENDIX for making a change from inventory property to

depreciable property for unrecoverable line pack gas or unrecoverable cushion gas); or

(B) a change in the character of a transaction from

sale to lease, or vice versa (but see section 2.03 of this APPENDIX for making this

change);

(xiv) a change from determining depreciation under 168 to

determining depreciation under former 168 for any property subject to the transition

rules in 203(b) or 204(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1, 60-80;

(xv) any change in the placed-in-service date of a depreciable or

amortizable property. This change is corrected by adjustments in the applicable taxable

year provided under 1.446-1(e)(2)(ii)(d)(5)(v);

or

(xvi) any property for which the rehabilitation credit under

47 was claimed and that a taxpayer is reclassifying to 3-year property, 5-year

property, 7-year property, 10-year property, 15-year property, 20-year property, or water

utility property (other than real property with a class life of more than 12.5 years).

(2) Additional requirements. A taxpayer also must comply with the

following:


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(a) Permissible method of accounting for depreciation. A taxpayer

must change to a permissible method of accounting for depreciation for the item of

depreciable or amortizable property. The permissible method of accounting is the same

method that determines the depreciation allowable for the item of property (as provided

in section 2.01(5) of this APPENDIX).

(b) Statements required. A taxpayer must provide the following

statements, if applicable, and attach them to the completed application:

(i) a detailed description of the former and new methods of

accounting. A general description of these methods of accounting is unacceptable (for

example, MACRS to MACRS, erroneous method to proper method, claiming less than

the depreciation allowable to claiming the depreciation allowable);

(ii) to the extent not provided elsewhere on the application, a

statement describing the taxpayers business or income-producing activities. Also, if the

taxpayer has more than one business or income-producing activity, a statement

describing the taxpayers business or income-producing activity in which the item of

property at issue is primarily used by the taxpayer;

(iii) to the extent not provided elsewhere on the application, a

statement of the facts and law supporting the new method of accounting, new

classification of the item of property, and new asset class in, as appropriate, Rev. Proc.

87-56 or Rev. Proc. 83-35. If the taxpayer is the owner and lessor of the item of

property at issue, the statement of the facts and law supporting the new asset class also

must describe the business or income-producing activity in which that item of property is


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primarily used by the lessee;

(iv) to the extent not provided elsewhere on the application,

a statement identifying the year in which the item of property was placed in service;

(v) if any item of property is public utility property within the

meaning of 168(i)(10) or former 167(l)(3)(A), as applicable, a statement providing

that the taxpayer agrees to the following additional terms and conditions:

(A) a normalization method of accounting (within the

meaning of former 167(l)(3)(G), former 168(e)(3)(B), or 168(i)(9), as applicable)

will be used for the public utility property subject to the application;

(B) as of the beginning of the year of change, the

taxpayer will adjust its deferred tax reserve account or similar reserve account in the

taxpayers regulatory books of account by the amount of the deferral of federal income

tax liability associated with the 481(a) adjustment applicable to the public utility

property subject to the application; and

(C) within 30 calendar days of filing the federal

income tax return for the year of change, the taxpayer will provide a copy of the

completed application to any regulatory body having jurisdiction over the public utility

property subject to the application;

(vi) if the taxpayer is changing the classification of an item of

1250 property placed in service after August 19, 1996, to a retail motor fuels outlet

under 168(e)(3)(E)(iii), a statement containing the following representation: For

purposes of 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents


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that (A) 50 percent or more of the gross revenue generated from the item of 1250

property is from the sale of petroleum products (not including gross revenue from

related services, such as the labor cost of oil changes and gross revenue from the sale

of nonpetroleum products such as tires and oil filters), (B) 50 percent or more of the

floor space in the item of property is devoted to the sale of petroleum products (not

including floor space devoted to related services, such as oil changes and floor space

devoted to nonpetroleum products such as tires and oil filters), or (C) the time of 1250

property is 1,400 square feet or less.; and

(vii) if the taxpayer is changing the classification of an item of

property from 1250 property to 1245 property under 168 or former 168, a

statement of the facts and law supporting the new 1245 property classification, and a

statement containing the following representation: Each item of depreciable property

that is the subject of the application filed under section 2.01 of the APPENDIX of Rev.

Proc. 2002-9 for the year of change beginning [Insert the date], and that is reclassified

from [Insert, as appropriate: nonresidential real property, residential rental property,

qualified leasehold improvement property, qualified restaurant property, 19-year real

property, 18-year real property, or 15-year real property] to an asset class of [Insert, as

appropriate, either: Rev. Proc. 87-56, 1987-2 C.B. 674, or Rev. Proc. 83-35,

1983-1 C.B. 745] that does not explicitly include 1250 property, is 1245 property for

depreciation purposes.

(3) Section 481(a) adjustment. Because the adjusted basis of the property

is changed as a result of a method change made under section 2.01 of this APPENDIX


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(see section 2.01(4) of this APPENDIX), items are duplicated or omitted. Accordingly,

this change is made with a 481(a) adjustment. This adjustment may result in either a

negative 481(a) adjustment (a decrease in taxable income) or a positive 481(a)

adjustment (an increase in taxable income) and may be a different amount for regular

tax, alternative minimum tax, and adjusted current earnings purposes. This 481(a)

adjustment equals the difference between the total amount of depreciation taken into

account in computing taxable income for the property under the taxpayers former

method of accounting (including the amount attributable to any property described in

section 2.01(1)(b) of this APPENDIX that is included in the taxpayers Form 3115), and

the total amount of depreciation allowable for the property under the taxpayers new

method of accounting (as determined under section 2.01(5) of this APPENDIX, and

including the amount attributable to any property described in section 2.01(1)(b) of this

APPENDIX that is included in the taxpayers Form 3115), for open and closed years

prior to the year of change. However, the amount of the 481(a) adjustment must be

adjusted to account for the proper amount of the depreciation allowable that is required

to be capitalized under any provision of the Code (for example, 263A) at the beginning

of the year of change.

(4) Basis adjustment. As of the beginning of the year of change, the basis

of depreciable property to which section 2.01 of this APPENDIX applies must reflect the

reductions required by 1016(a)(2) for the depreciation allowable for the property (as

determined under section 2.01(5) of this APPENDIX).

(5) Meaning of depreciation allowable.


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(a) In general. Section 2.01(5) of this APPENDIX provides the

amount of the depreciation allowable determined under 56(a)(1), 56(g)(4)(A), 167,

168, 197, 1400I, or 1400L(c), or former 168. This amount, however, may be

limited by other provisions of the Code (for example, 280F).

(b) Section 56(a)(1) property. The depreciation allowable for any

taxable year for property for which depreciation is determined under 56(a)(1) is

determined by using the depreciation method, recovery period, and convention provided

for under 56(a)(1) that applies for the propertys placed-in-service date.

(c) Section 56(g)(4)(A) property. The depreciation allowable for any

taxable year for property for which depreciation is determined under 56(g)(4)(A) is

determined by using the depreciation method, recovery period or useful life, as

applicable, and convention provided for under 56(g)(4)(A) that applies for the

propertys placed-in-service date.

(d) Section 167 property. Generally, for any taxable year, the

depreciation allowable for property for which depreciation is determined under 167, is

determined either:

(i) under the depreciation method adopted by a taxpayer for

the property; or

(ii) if that depreciation method does not result in a

reasonable allowance for depreciation or a taxpayer has not adopted a depreciation

method for the property, under the straight-line depreciation method.

For determining the estimated useful life and salvage value of the property, see


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1.167(a)-1(b) and (c), respectively.

The depreciation allowable for any taxable year for property subject to 167(f)

(regarding certain property excluded from 197) is determined by using the

depreciation method and useful life prescribed in 167(f). If computer software is

depreciated under 167(f)(1) and is qualified property (as defined in 168(k)(2) and

1.168(k)-1 of the Income Tax Regulations), 50-percent bonus depreciation property

(as defined in 168(k)(4) and 1.168(k)-1), qualified New York Liberty Zone (Liberty

Zone) property (as defined in 1400L(b)(2) and 1.1400L(b)-1), or qualified Gulf

Opportunity Zone (GO Zone) property (as defined in sections 2.02 and 2.03 of Notice

2006-77, 2006-40 I.R.B. 590), the depreciation allowable for that computer software

under 167(f)(1) is also determined by taking into account the additional first year

depreciation deduction provided by 168(k), 1400L(b), or 1400N(d), as applicable,

unless the taxpayer made a timely valid election not to deduct any additional first year

depreciation for the computer software.

(e) Section 168 property. The depreciation allowable for any

taxable year for property for which depreciation is determined under 168, is

determined as follows:

(i) by using either:

(A) the general depreciation system in 168(a); or

(B) the alternative depreciation system in 168(g) if

the property is required to be depreciated under the alternative depreciation system

pursuant to 168(g)(1) or other provisions of the Code (for example, property described


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in 263A(e)(2)(A) or 280F(b)(1)). Property required to be depreciated under the

alternative depreciation system pursuant to 168(g)(1) includes property in a class (as

set out in 168(e)) for which the taxpayer made a timely valid election under

168(g)(7); and

(ii) if the property is qualified property, 50-percent bonus

depreciation property, Liberty Zone property, or GO Zone property, by taking into

account the additional first year depreciation deduction provided by 168(k),

1400L(b), or 1400N(d), as applicable, unless the taxpayer made a timely valid

election not to deduct the additional first year depreciation (or made a deemed election

not to deduct the additional first year depreciation; for further guidance, see Rev. Proc.

2002-33, 2002-1 C.B. 963, Rev. Proc. 2003-50, 2003-2 C.B. 119, or Notice 2006-77) for

the class of property (as defined in 1.168(k)-1(e)(2), 1.1400L(b)-1(e)(2), or section

4.02 of Notice 2006-77, as applicable) in which that property is included.

(f) Section 197 property. The depreciation allowable for any taxable year

for an amortizable 197 intangible (including any property for which a timely election

under 13261(g)(2) of the 1993 Act was made) is determined in accordance with

1.197-2(f).

(g) Former 168 property. The depreciation allowable for any

taxable year for property subject to former 168 is determined by using either:

(i) the accelerated method of cost recovery applicable to the

property (for example, for 5-year property, the recovery method under former

168(b)(1)); or


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(ii) the straight-line method applicable to the property if the

property is required to be depreciated under the straight-line method (for example,

property described in former 168(f)(12) or former 280F(b)(2)) or if the taxpayer

elected to determine the depreciation allowance under the optional straight-line

percentage (for example, the straight-line method in former 168(b)(3)).

(h) Qualified revitalization building. The depreciation allowable for

any taxable year for any qualified revitalization building (as defined in 1400I(b)(1)) for

which the taxpayer has made a timely valid election under 1400I(a) is determined as

follows:

(i) if the taxpayer elected to deduct one-half of any qualified

revitalization expenditures (as defined in 1400I(b)(2)) chargeable to a capital account

with respect to the qualified revitalization building for the taxable year in which the

building is placed in service by the taxpayer, the depreciation allowable for the

propertys placed-in-service year is equal to one-half of the qualified revitalization

expenditures for the property and the depreciation allowable for the remaining recovery

period of the property is determined using the general depreciation system of 168(a)

or the alternative depreciation system of 168(g), as applicable; or

(ii) if the taxpayer elected to amortize all of the qualified

revitalization expenditures chargeable to a capital account with respect to the qualified

revitalization building ratably over the 120-month period beginning with the month in

which the building is placed in service, the depreciation allowable is determined in

accordance with this election.


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(i) Qualified New York Liberty Zone leasehold improvement

property. The depreciation allowable for any taxable year for qualified New York Liberty

Zone leasehold improvement property (as defined in 1400L(c)(2)) is determined by

using the depreciation method and recovery period prescribed in 1400L(c) unless the

taxpayer made a timely valid election under 1400L(c) not to use that recovery period.

SECTION 2. Section 2.02 of the APPENDIX of Rev. Proc. 2002-9 is deleted and


.02 Permissible to permissible method of accounting for depreciation.

(1) Description of change. This change applies to a taxpayer that wants to

change from a permissible method of accounting for depreciation under 56(g)(4)(A)(iv)

or 167 to another permissible method of accounting for depreciation under

56(g)(4)(A)(iv) or 167. Pursuant to 1.167(a)-7(a) and (c), a taxpayer may account

for depreciable property either by treating each individual asset as an account or by

combining two or more assets in a single account and, for each account, depreciation

allowances are computed separately.

(2) Scope.

(a) Applicability. This change applies to any taxpayer wanting to

make a change in method of accounting for depreciation specified in section 2.02(3) of

this APPENDIX for the property in an account:

(i) for which the present and proposed methods of

accounting for depreciation specified in section 2.02(3) of this APPENDIX are

permissible methods for the property under 56(g)(4)(A)(iv) or 167; and


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(ii) that is owned by the taxpayer at the beginning of the year

of change.

(b) Certain scope limitations inapplicable. The scope limitations in

sections 4.02(7) and 4.02(8) of this revenue procedure are not applicable to this

change.

(c) Inapplicability. This change does not apply to:

(i) any taxpayer that is subject to 263A and that is required

to capitalize the costs with respect to which the taxpayer wants to change its method of

accounting under section 2.02 of this APPENDIX, if the taxpayer is not capitalizing the

costs as required;

(ii) any property to which 1016(a)(3) (regarding property


(iii) any property described in 167(f) (regarding certain

property excluded from 197);

(iv) any property subject to 167(g) (regarding property

depreciated under the income forecast method);

(v) any property for which depreciation is determined under

56(a)(1), 56(g)(4)(A)(i), (ii), (iii), or (v), 168, 1400I, 1400L(c),

168 prior to its amendment in 1986 (former 168), or any additional first year

depreciation deduction provision of the Internal Revenue Code (for example, 168(k),

1400L(b), or 1400N(d));

(vi) any property that the taxpayer elected under 168(f)(1)


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or former 168(e)(2) to exclude from the application of, respectively, 168 or former

168;

(vii) any property for which depreciation is determined in

accordance with 1.167(a)-11 (regarding the Class Life Asset Depreciation Range

System (ADR));

(viii) any depreciable property for which the taxpayer is

changing the depreciation method pursuant to 1.167(e)-1(b) of the Income Tax

Regulations (change from declining-balance method to straight-line method),

1.167(e)-1(c) (certain changes for 1245 property), or 1.167(e)-1(d) (certain

changes for 1250 property). These changes must be made prospectively and are not

permitted under the cited regulations for property for which the depreciation is

determined under 168, 1400I, 1400L, or former 168; or

(ix) any distributor commissions (as defined by section 2 of

Rev. Proc. 2000-38, 2000-2 C.B. 310) for which the taxpayer is changing the useful life

under the distribution fee period method or the useful life method (both described in

Rev. Proc. 2000-38). A change in this useful life is corrected by adjustments in the

applicable taxable year provided under 1.446-1(e)(2)(ii)(d)(5)(iv).

(3) Changes covered. Section 2.02 of this APPENDIX only applies to the

following changes in methods of accounting for depreciation:

(a) a change from the straight-line method to the

sum-of-the-years-digits method, the sinking fund method, the unit-of-production method,

or the declining-balance method using any proper percentage of the straight-line rate;


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(b) a change from the declining-balance method using any

percentage of the straight-line rate to the sum-of-the-years-digits method, the sinking

fund method, or the declining-balance method using a different proper percentage of the

straight-line rate;

(c) a change from the sum-of-the-years-digits method to the sinking

fund method, the declining-balance method using any proper percentage of the

straight-line rate, or the straight-line method;

(d) a change from the unit-of-production method to the straight-line

method;

(e) a change from the sinking fund method to the straight-line

method, the unit-of-production method, the sum-of-the-years-digits method, or the

declining-balance method using any proper percentage of the straight-line rate;

(f) a change in the interest factor used in connection with a

compound interest method or sinking fund method;

(g) a change in averaging convention as set forth in

1.167(a)-10(b). However, as specifically provided in 1.167(a)-10(b), in any taxable

year in which an averaging convention substantially distorts the depreciation allowance

for the taxable year, it may not be used (see Rev. Rul. 73-202, 1973-1 C.B. 81);

(h) a change from charging the depreciation reserve with costs of

removal and crediting the depreciation reserve with salvage proceeds to deducting

costs of removal as an expense and including salvage proceeds in taxable income as

set forth in 1.167(a)-8(e)(2). See Rev. Rul. 74-455, 1974-2 C.B. 63. This change,


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however, may be made under this revenue procedure only if:

(i) the change is applied to all items in the account for which

the change is being made; and

(ii) the removal costs are not required to be capitalized under

any provision of the Code (for example, 263(a), 263A, or 280B);

(i) a change from crediting the depreciation reserve with the

salvage proceeds realized on normal retirement sales to computing and recognizing

gains and losses on the sales (see Rev. Rul. 70-165, 1970-1 C.B. 43);

(j) a change from crediting ordinary income (including the

combination method of crediting the lesser of estimated salvage value or actual salvage

proceeds to the depreciation reserve, with any excess of salvage proceeds over

estimated salvage value credited to ordinary income) with the salvage proceeds

realized on normal retirement sales, to computing and recognizing gains and losses on

the sales (see Rev. Rul. 70-166, 1970-1 C.B. 44);

(k) a change from item accounting for specific assets to multiple

asset accounting (pooling) for the same assets, or vice versa;

(l) a change from one type of multiple asset accounting (pooling) for

specific assets to a different type of multiple asset accounting (pooling) for the same

assets;

(m) a change from one method described in Rev. Proc. 2000-38 for

amortizing distributor commissions (as defined by section 2 of Rev. Proc. 2000-38,

2000-2 C.B. 310) to another method described in Rev. Proc. 2000-38 for amortizing


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distributor commissions; or

(n) a change from pooling to a single asset, or vice versa, for

distributor commissions (as defined by section 2 of Rev. Proc. 2000-38, 2000-2 C.B.

310) for which the taxpayer is using the distribution fee period method or the useful life

method (both described in Rev. Proc. 2000-38).

(4) Additional requirements. A taxpayer also must comply with the

following:

(a) Basis for depreciation. At the beginning of the year of change,

the basis for depreciation of property to which this change applies is the adjusted basis

of the property as provided in 1011 at the end of the taxable year immediately

preceding the year of change (determined under the taxpayers present method of

accounting for depreciation). If applicable under the taxpayers proposed method of

accounting for depreciation, this adjusted basis is reduced by the estimated salvage

value of the property (for example, a change to the straight-line method).

(b) Rate of depreciation. The rate of depreciation for property

changed to:

(i) the straight-line or the sum-of-the-years-digits method of

depreciation must be based on the remaining useful life of the property as of the

beginning of the year of change; or

(ii) the declining-balance method of depreciation must be

based on the useful life of the property measured from the placed-in-service date, and

not the expected remaining life from the date the change becomes effective.


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(c) Regulatory requirements. For changes in method of

depreciation to the sum-of-the-years-digits or declining-balance method, the property

must meet the requirements of 1.167(b)-0 or 1.167(c)-1, as appropriate.

(d) Public utility property. If any item of property is public utility

property within the meaning of former 167(l)(3)(A), the taxpayer must attach to the

application a statement providing that the taxpayer agrees to the following additional

terms and conditions:

(i) a normalization method of accounting within the meaning

of former 167(l)(3)(G) will be used for the public utility property subject to the

application; and

(ii) within 30 calendar days of filing the federal income tax

return for the year of change, the taxpayer will provide a copy of the completed

application to any regulatory body having jurisdiction over the public utility property

subject to the application.

(5) Section 481(a) adjustment. Because the adjusted basis of the property

is not changed as a result of a method change made under section 2.02 of this

APPENDIX, no items are being duplicated or omitted. Accordingly, no 481(a)

adjustment is required or necessary.

SECTION 3. Section 2B of the APPENDIX of Rev. Proc. 2002-9 is deleted and


SECTION 2B. COMPUTER SOFTWARE EXPENDITURES ( 162, 167, AND

197)


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.01 Description of change. This change applies to a taxpayer that wants to

change its method of accounting for the costs of computer software to a method

described in Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16,

2007-4 I.R.B. ___. Section 5 of Rev. Proc. 2000-50 describes the methods applicable

to the costs of developing computer software. Section 6 of Rev. Proc. 2000-50

describes the method applicable to the costs of acquired computer software. Section 7

of Rev. Proc. 2000-50 describes the method applicable to leased or licensed computer

software. If a taxpayer treats the costs of computer software in accordance with the

applicable method described in Rev. Proc. 2000-50, the Service will not disturb the

taxpayers treatment of its costs of computer software.

.02 Scope. This change applies to all costs of computer software as defined in

section 2 of Rev. Proc. 2000-50. However, this change does not apply to any computer

software that is subject to amortization as an amortizable section 197 intangible as

defined in 197(c) and the regulations thereunder, or to costs that a taxpayer has

treated as research and experimentation expenditures under 174.

.03 Statement required. If a taxpayer is changing to the method described in

section 5.01(2) of Rev. Proc. 2000-50, the taxpayer must attach to the application a

statement providing the information required in section 8.02(2) of Rev. Proc. 2000-50.

SECTION 4. Section 2.05 of the APPENDIX of Rev. Proc. 2002-9 is added to read as

follows:

.05 Impermissible to permissible method of accounting for depreciation or

amortization for disposed depreciable or amortizable property.


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(1) Description of change. This change applies to a taxpayer that wants to

make the change in method of accounting for depreciation or amortization

(depreciation) provided under section 3 of Rev. Proc. 2007-16, 2007-4 I.R.B. , for an

item of depreciable or amortizable property that has been disposed of by the taxpayer.

Section 3 of Rev. Proc. 2007-16 allows a taxpayer to make a change in method of

accounting for depreciation for the disposed property if the taxpayer used an

impermissible method of accounting for depreciation for the property under which the

taxpayer did not take into account any depreciation allowance, or did take into account

some depreciation but less than the depreciation allowable, in the year of change (as

defined in section 2.05(4) of this APPENDIX) or any prior taxable year.

(2) Scope.

(a) Applicability. Except as provided in section 2.05(2)(b) of this

APPENDIX, section 2.05 of this APPENDIX applies to a taxpayer that is changing from

an impermissible method of accounting for depreciation to a permissible method of

accounting for depreciation for any item of depreciable or amortizable property subject

to 167, 168, 197, 1400I, or 1400L(c), to former 168, or to any additional first year

depreciation deduction provision of the Internal Revenue Code (for example, 168(k),

1400L(b), or 1400N(d)):

(i) that has been disposed of by the taxpayer during the year

of change (as defined in section 2.05(4) of this APPENDIX); and

(ii) for which the taxpayer did not take into account any

depreciation allowance, or did take into account some depreciation but less than the


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depreciation allowable (hereinafter, both are referred to as claimed less than the

depreciation allowable), in the year of change (as defined in section 2.05(4) of this

APPENDIX) or any prior taxable year.

(b) Inapplicability. Section 2.05 of this APPENDIX does not apply

to:

(i) any property to which 1016(a)(3) (regarding property


(ii) any property for which a taxpayer is revoking a timely

valid depreciation election, or making a late depreciation election, under the Code or

regulations thereunder, or under other guidance published in the Internal Revenue

Bulletin (including under 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993,

1993-3 C.B. 1, 128 (relating to amortizable 197 intangibles));

(iii) any property for which the taxpayer deducted the cost or

other basis of the property as an expense; or

(iv) any property disposed of by the taxpayer in a transaction

to which a nonrecognition section of the Code applies (for example, 1031,

transactions subject to 168(i)(7)(B)(i)). However, this section 2.05(2)(b)(iv) does not

apply to property disposed of by the taxpayer in a 1031 or 1033 transaction if the

taxpayer elects under 1.168(i)-6T(i) and (j) to treat the entire basis (that is, both the

exchanged and excess basis (as defined in 1.168(i)-6T(b)(7) and (8), respectively)) of

the replacement MACRS property (as defined in 1.168(i)-6T(b)(1)) as property placed

in service by the taxpayer at the time of replacement and treat the adjusted depreciable


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basis of the relinquished MACRS property (as defined in 1.168(i)-6T(b)(2)) as being

disposed of by the taxpayer at the time of disposition.

(3) Manner of making the change.

(a) Change made on an original return for year of change. This

change may be made on a taxpayers timely filed (including extensions) original federal

tax return for the year of change (as defined in section 2.05(4) of this APPENDIX),

provided the taxpayer files the original Form 3115 in accordance with section 6.02(3) of

this revenue procedure.

(b) Change made on an amended return for year of change. This

change may also be made on an amended federal tax return for the year of change (as

defined in section 2.05(4) of this APPENDIX), provided:

(i) the taxpayer files the original Form 3115 with the

taxpayers amended federal tax return for the year of change (as defined in section

2.05(4) of this APPENDIX) prior to the expiration of the period of limitation for

assessment under 6501(a) for the taxable year in which the item of depreciable or

amortizable property was disposed of by the taxpayer; and

(ii) the taxpayers amended federal tax return for the year of

change (as defined in section 2.05(4) of this APPENDIX) includes the adjustments to

taxable income and any collateral adjustments to taxable income or tax liability (for

example, adjustments to the amount or character of the gain or loss of the disposed

depreciable or amortizable property) resulting from the change in method of accounting

for depreciation made by the taxpayer under section 2.05 of this APPENDIX.


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(4) Year of change. The year of change for this change is the taxable year

in which the item of depreciable or amortizable property was disposed of by the

taxpayer.

(5) Scope limitations inapplicable. The scope limitations in section 4.02 of

this revenue procedure do not apply. If the taxpayer is under examination, before an

appeals office, or before a federal court at the time that a copy of the Form 3115 is filed

with the national office, the taxpayer must provide a copy of the Form 3115 to the

examining agent, appeals officer, or counsel for the government, as appropriate, at the

time the copy of the Form 3115 is filed with the national office. The Form 3115 must

contain the name(s) and telephone number(s) of the examining agent, appeals officer,

or counsel for the government, as appropriate.

(6) Filing requirements. Notwithstanding section 6.02(3)(a) of this revenue

procedure, a taxpayer making this change in accordance with section 2.05(3)(b) of this

APPENDIX must attach the original Form 3115 to the taxpayers timely filed amended

federal tax return for the year of change and must file the required copy (with signature)

of the Form 3115 with the national office no later than when the original Form 3115 is

filed with the amended federal tax return for the year of change. If a taxpayer is making

this change in accordance with section 2.05(3)(a) of this APPENDIX, the filing

requirements in section 6.02(3)(a) of this revenue procedure apply.

(7) Section 481(a) adjustment period. A taxpayer must take the 481(a)

adjustment into account in the year of change.

US Internal Revenue Service: rp-07-16

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